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Wednesday, December 11, 2013

Seeking Alpha: Popular Has Survived, But What Happens Next?

Puerto Rico's largest bank, Popular (BPOP), certainly earned its seat at the table with other seriously distressed banks like Doral (DRL), Bank of America (BAC), and Synovus (SNV).
This bank's non-performing loan ratio topped out at over 10% at one
point, with bad construction loans making up almost a third of bad loans
(despite being less than 10% of the loan book).

Like other
distressed banks, Popular took advantage of the government's largesse
(including TARP) to get its affairs back in order. Bad credit inflows
have improved significantly and the bank continues to sport a relatively
high net interest margin and a surprisingly competitive efficiency
ratio. That has helped the bank join in with those other distressed
peers in a fairly solid recovery trade.

The question is, "now what?" Popular has maintained a significant lead on other Puerto Rican banks like First Bancorp (FBP) and Doral, not to mention the PR operations of larger banks like Citi (C), Santander (SAN), and Scotiabank (BNS),
and though the company's mainland operations lack scale, the
opportunities to grow by targeting the Hispanic community are not
trivial. The iffy state of the Puerto Rican economy certainly does not
help matters, but it would seem that these shares remain undervalued on
the basis of the bank's long-term earnings potential.

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